Risks to our Businesses

HOME'S Services Segment

Overseas Segment

New Businesses

Reliance on the Founder

Representative Director, Chairperson of the LIFULL Group, INOUE Takashi, is also the founder of the
Company and has led it since its founding. President Inoue
has considerable experience and knowledge regarding the real estate industry and internet services and plays a very important role in the formulation and execution of management plans and business strategies.
We have taken steps to create a management system that does not rely excessively on President Inoue such as sharing information among directors and key employees at meetings of the Board of Directors and Management Committee meetings, strengthening our management organization and introducing a corporate officer system to speed up decision-making by promoting the delegation of authority. However, if President Inoue leaves his post or becomes incapable of executing his duties for some reason, this could have an impact on the Group's performance.

Risks Associated with M&A and Investment

We consider active acquisitions an important part of　further developing our existing services, acquiring related technology, attracting new talent, developing new services and acquiring other important strategic assets in order to carry out the Group's growth strategy. When making an acquisition, we endeavor to avoid risks where possible target, including its business model, financial position and current contracts. We then make a decision on whether or not to invest according to our approval process. However, if contingent liabilities or other initially unrecognized liabilities are discovered after the acquisition, they could have an affect on the financial position and business performance of the Group.
The Group's financial position and performance could also　be affected if the corporate value of a target company is　overestimated at the time of investment, if the plan changes　due to changes in the business environment, if the integration　or fusion of internal control systems does not proceed　smoothly, if key persons such as officers and employees of　an investment company resign or have difficulty executing　their duties for some reason, or if the investment does not　produce the expected result for some reason.
The Group may not always have control when it comes　to business alliances and joint ventures. Therefore, if the　expected result is not produced when an investment decision　is made because of differences in management policies with　partner companies, including changes in strategy due to　alliances such as fund procurement from companies other　than the Group, the Group's business performance could　be affected, making it impossible to recover the investment　capital.
The Group records goodwill as non-current assets, which　accounts for a high percentage of total assets. The Company　uses International Financial Reporting Standards (IFRS)　when preparing consolidated financial statements, so there is no need to amortize goodwill. However, if the profitability of a target company for goodwill drops significantly and the recoverable amount, which is a future effect, falls below the book value, it will be necessary to record an impairment loss, which could affect the Group's performance.

Management of Group Companies

We strive to promote the penetration of the LIFULL Group's Corporate Philosophy to our domestic and international subsidiaries. To do so, we have established a set of Group Company Management Regulations, which sets decision-making authorities and takes the autonomy of group companies into consideration. However, in the event of fraudulent activities by officers or employees of group companies, or if group company management does not function sufficiently, there is a possibility that it may affect the performance and corporate value of the LIFULL Group.

Reliance on External Search Engines

Most users visiting our websites navigate there via search engines, and we, therefore, rely on results displayed by search engine operators to attract users. The conditions necessary for search engine results to be displayed near the top of search results listings are controlled according to the policies and rules of search engine operators, and we are unable to influence such decisions. Not only are we working to strengthen our unique ability to attract customers through aggressive branding promotions, but we are also taking necessary measures such as adjusting our SEO to appear at the top of search results. Group performance may be affected if the ability to attract customers to sites operated by the Group decreases because search results are not displayed favorably for the Group such as due to a change in the policy for showing top results by the operator of a search engine.

System Issues

Many of the Group's services depend on computer systems and the communication networks that connect them.
Therefore, we have implemented a number of security measures to handle intrusions including computer viruses and malware as well as outside attacks by hackers and have adopted a system that continuously backs up server data.
However, suspending the provision of all or some services temporarily or for a certain period of time as a result of hardware or software defects, failures of networks or computer systems, external cyberattacks or unauthorized access by third parties, human error by officers and employees of our Company or outsourced companies, communication network disconnections due to disasters or accidents, temporary server outages due to a sudden increase in access or power issues could result in the loss of profit opportunities, loss of trust in the Group's system itself and loss due to providing compensation for damages. All of these could affect the Group's business performance.

Handling of Personal Information

Various services operated by the Group require the acquisition of personal information such as names, addresses, telephone numbers, e-mail addresses, workplace information, dates of birth and gender. We handle a large volume of important information including confidential information from our trading partners. We view the proper management of this information as a very important responsibility, and we exercise the utmost care when handling this information. We strive to strengthen our information management protocol by establishing internal regulations for handling information, conducting regular training of employees, working to strengthen the security of our systems and conducting internal investigations on how information is handled. When the Group is required by law or other regulations to disclose personal information, we make the decision to comply only after holding careful discussions with our attorneys and the competent authorities.
We are committed to protecting various types of information. However, if such information were to be leaked, lost, falsified, or used illegally such as due to unauthorized outside access or defects in our internal management system, the Group's business performance could be affected by claims for damages, the burden of expenses for taking appropriate measures, loss of profit opportunities, disciplinary action from regulatory authorities, and loss of the Group's social credibility resulting in loss of users and clients.

Legal Restrictions on the Internet

The primarily way the Group provides services is over the internet. In recent years, regulations in Japan such as the revision to the Act on the Protection of Personal Information, which goes into effect in April 2022, are being considered to clarify the terms and conditions of transactions with digital platform operators. Rules related to internet use are also being developed in other countries. The performance of the Group could be affected if laws and regulations are newly enacted or the current rules are revised for internet users and service providers in the future. In addition, Group performance may be affected if the Group becomes legally obligated to take responsibility for problems between clients and users where the Group is not a direct party, including issues that cross international borders.

Compliance

The Group has positioned the enhancement of compliance and internal control systems as one of our critical management challenges in order to comply with laws and other regulations. We provide appropriate instructions and guidance to employees of each subsidiary and take necessary preventive measures to avoid ties with anti-social forces and prevent and detect fraudulent activities.
Within the scope of our business operations, we confirm with the relevant authorities and seek and seek advice from external experts such as lawyers when needed. However, our internal control systems, including compliance, have certain limitations, and they cannot completely eliminate risks. In the future, if violations of laws or regulations occur, including those originating from the Group or our business partners, or if we receive administrative guidance due to differences in interpretation of laws, regulations, or other rules, it could lead to a decrease in the reliability and reputation of the Group. This may result in user and customer attrition or lawsuits, potentially affecting the performance of the Group.
Furthermore, if there are revisions in the interpretation of various laws, the addition of conditions or strengthening of regulations that could have a negative impact on the Group's business, there is a possibility that these could affect our overall performance.

Talent Acquisition and Training

In most of our businesses, we use the internet to provide services in various fields such as housing and care facilities for the elderly. As a result, we require specialized talent for research and development, internet and IT professionals, as well as specialized individuals in each of our service areas. The continuous acquisition and development of talent is positioned as a critical management challenge to enhance the competitiveness of our services. However, against the backdrop of various industries embracing digital transformation (DX), there is a growing shortage of IT talent, leading to increased employment conditions and intensified competition for talent acquisition. In the future, intensifying competition for talent acquisition across service fields, professions and regions may pose challenges in securing exceptional talent or result in talent outflow, potentially impacting the operation and performance of the Group.

Risks Associated with Economic Fluctuations

The internet advertising market, where the Group mainly operates, continues to expand in scale as the internet continues to expand, as smartphones become more common, and as various fields move online.
However, since advertising strategies are impacted by changes to business conditions and the business environment, they are also greatly affected by economic fluctuations. Therefore, if the economy deteriorates in the future, Group performance may be affected.

Risks from Natural Disasters

We have formulated a business continuity plan (BCP) for emergencies. However, in the event of an unanticipated largescale disaster, epidemic or regional / international conflict, it may become impossible for the Group to continue business activities or provide its services. In addition, if the economy of an entire society becomes stagnant due to a disaster or a prolonged period of impact, the need for the services provided by the Group may decline, which may affect Group performance.

Foreign Exchange Fluctuations

As we are developing businesses overseas, rapid fluctuation in currency exchange rates may impact transactions between companies in different regions, product prices at overseas operation bases and service costs, as well as impact earnings including sales income and profit levels. In addition, currency exchange rates have an impact on the conversion rates used when the value of overseas assets and liabilities are converted into yen on our consolidated financial statements. Greater-than-expected fluctuation in exchange rates could have an impact on our financial position or the results of our operations.

Competition

There are multiple competitors for the internet-based services operated by the Group such as LIFULL HOME'S, Trovit, Mitula, Nestoria, and LIFULL Kaigo (Nursing Care).
There are also multiple competitors for services outside of
internet-related services.
That is why the Group will continue to make investments to strengthen the competitiveness of its services and strive to differentiate itself from other companies. However, investments to strengthen our competitiveness may not bring the desired results according to the plan, and since barriers for entry into the internet industry are low, it is easy for new companies to enter the industry. Therefore, the Group's business performance could be affected if competition for innovative technologies and business models emerges and the competition intensifies.

Innovation

All of our Group's businesses are based on information and communication technology (ICT), and we are working to improve the value of each service by actively utilizing advanced technology.
However, ICT is progressing at a rapid rate. If the Group is somehow unable to respond to technologies with high utility value, technologies we have introduced may become obsolete. This would cause a drop in the satisfaction of users and clients for each provided service, which could affect Group performance.
Group business performance may also be affected if there is an increase in expenses such as for the purchases of network-related equipment and software, license fees for supporting new technologies and costs for in-house or outsourced development.

Dividend Policy

As we actively promote and develop our business, we are making investments for future growth in order to continue to increase profitability and strengthen our financial position. For this purpose, our policy is to balance profit sharing with investors with retained earnings. In regard to dividends, our fundamental policy is to flexibly distribute profit based on the results of each fiscal year in line with our mid- to long-term business plans. Therefore, if the Group should have negative results in a given fiscal year, dividends may be reduced to zero.

The Group's Relationship with Rakuten Group, Inc.

Rakuten Group, Inc. is considered a major shareholder in LIFULL, and is classified as one of our "affiliated companies." We have had a wide-ranging and amicable relationship with Rakuten Group, Inc., including business transaction relationships such as LIFULL sharing its real estate information on websites operated by Rakuten Group, Inc.
It is unclear whether the relationship between the two companies will remain the same in the future. If the current relationship is not maintained, although the volume of transactions between the two companies is relatively small, this could have an impact on our future business development and capitalization strategy.